Hello and welcome to the FT’s Cryptofinance Newsletter. This week, we’re taking a look at Jesse Powell’s decision to step down as Kraken chief executive.
The crypto industry isn’t as young as its supporters would have you believe. It’s been busy growing up with a whole host of C-suite names that have become synonymous with the brand of crypto itself.
But the market’s near-unprecedented crash earlier this year didn’t just cost thousands of people their jobs (here’s to you, Coinbase, Gemini, Crypto.com and several others), its effects are now creeping over some of crypto’s most vocal and controversial personalities.
This week Jesse Powell, the controversial 40-something industry pioneer, said he would step down as chief executive of crypto exchange Kraken. He joins MicroStrategy’s Michael Saylor, Michael Moro of Genesis and Alameda’s Sam Trabucco to leave senior posts during the current downturn.
These resignations come hot off the heels of some far more serious catastrophes in the industry, capturing Alex Mashinsky, chief executive of bankrupt crypto lending platform Celsius, and Su Zhu and Kyle Davies, the brains behind Three Arrows Capital, the infamous crypto hedge fund that has also fallen into bankruptcy.
Most of them were active social media influencers, using platforms such as Twitter to preach the virtues of digital tokens. In their own way, they contributed to the industry’s culture as prices soared.
Powell was a prime example of how that accessibility on social media and confidence in crypto’s millenarian vision of society transformed could combine into a heady brew.
He tapped into crypto’s libertarian ethos as an outspoken critic of “woke” politics, overseeing a Kraken “culture” that pledged cult-like allegiance to “The Mission”.
According to a tweet in June, some “Krakenites” were unhappy with certain aspects of life at the exchange, including what Powell described as “first world problems” like . . . *checks notes* . . . “whether someone can identify as a different race and be allowed to use the N-word”.
As the thread progressed, he defended his free speech credentials. Powell also said he “entertained debate for a bit because [he’s] open minded”. Later he signed off that “people get triggered by everything and can’t conform to basic rules of honest debate. Back to dictatorship”. OK.
Why are top executives looking to the door? It’s often said that major events in life give pause for reflection on what matters. Powell wanted to step back from running the day-to-day business, Trabucco recently bought a boat, and Saylor is keen to focus on buying bitcoin.
But a successful religion needs its prophets, and its profits. Their departures are coinciding with more awkward issues.
MicroStrategy — the once obscure software company that is now a de facto bitcoin ETF — was staring at billions worth of losses this summer after spending the past couple of years betting big on bitcoin. Saylor also has a tax problem to resolve.
Moro left Genesis as the crypto broker counted the cost of lending $2.4bn to Three Arrows Capital, which collapsed after its brave bets on bitcoin turned south in the wake of the broader crypto market collapse earlier this year.
The New York Times reported that Kraken is under federal investigation for potentially violating US sanctions on Iran. Powell himself had hit out against the Treasury’s recent designation of crypto mixing service Tornado Cash, which allegedly facilitated billions worth of laundered crypto, calling it “unconstitutional”.
In traditional finance, normally the hole left by a charismatic CEO is filled by a more sober individual, less given to colourful comments that get them into trouble with regulators or employees.
But crypto may be different. Powell plans to focus on advocating for the industry writ large. Saylor also wants to be an evangelist, leaving me to wonder what he thinks he’s been doing for the past two years.
The industry is currently going through one of its periodic downturns. Many of the industry’s leading lights, such as FTX’s Sam Bankman-Fried, Coinbase’s Brian Armstrong and Galaxy Digital’s Michael Novogratz, still preach on social media. We wait to see who else emerges to lead it out of the wilderness.
Will the streak of crypto executive resignations continue? Watch this space, and always feel free to email me at [email protected]
Another week, another crypto hack. This time round, market maker Wintermute’s number was called up. Chief executive Evgeny Gaevoy said the platform’s DeFi operations had been compromised to the tune of $160mn, but added Wintermute was “solvent” with “twice over that amount in equity left”. Going forward, the company plans to keep the DeFi faith and “keep moving forward through this bear market”.
A legal case worth watching: the Securities and Exchange Commission has brought a case in Texas against Ian Balina, alleging he failed to disclose compensation he received from an unregistered initial coin offering in 2018. In a court filing this week the regulator claimed jurisdiction over ether transactions that were validated by a network of nodes “clustered more densely in the United States than in any other country”. Post-Merge, some commentators said they were worried about ethereum’s “censorship resistance” credentials. You can read all about it in my recent take on the network’s proof-of-stake shift and what it means for crypto’s future.
Binance announced a new global advisory board chaired by former US senator and ambassador to China Max Baucus and including former ISOCO secretary-general David Wright. The board will advise on “complex regulatory, political and social issues the entire crypto industry faces”. Chief executive Changpeng Zhao described the board as a “testament to our focus on compliance, transparency and ensuring a collaborative relationship with the world’s regulators”, but the exchange has faced a series of arguments with regulators around the world, including the Netherlands, the UK and Singapore.
The Crypto Council for Innovation, a crypto advocacy group, this week launched the Digital Future Award to acknowledge US Members of Congress who are “leading the way on a complex and nuanced set of issues” relating to digital assets. Among the award’s recipients are senators Ted Cruz and Cynthia Lummis, and Congresswoman Maxine Waters.
Soundbite of the week: Consumer protection at its finest
A noteworthy quote usually lives in this section of my newsletter, but this week is different. Below is a screenshot documenting Binance’s efforts to protect its consumers against Terra 2.0.
Reading the boilerplate warning, my mind went to this classic Simpsons scene about Homer eating fugu, the fish that might make a great meal but that also could kill him. “Yes, yes, it is poisonous, potentially fatal, but if sliced properly, it can be quite tasty.”
Binance said it adopts strict security protocols and maintains high standards for the tokens it lists, and encouraged users to understand any risks involved and trade with caution.
Tether, the world’s largest stablecoin provider, came under renewed pressure this week to open its doors to regulators. A New York court ordered Tether — and sister company Bitfinex — to provide documents that relate to the backing of the tether stablecoin.
The good news for Tether, however, is the fact bitcoin trading into tether (USDT) has surged in recent months following this year’s crypto market crash.
According to data compiled by data analytics platform CryptoCompare, bitcoin-USDT trading volume in bitcoin has roughly doubled since May, when the stablecoin’s peg to the dollar was briefly lost as a result of growing selling pressure in the wake of crashing crypto prices.